Very little in President Obama’s 2011 budget, released this morning, is new. But the numbers…. Even in Washington, where we throw around trillions of dollars as if they were Hershey’s Kisses at Halloween, these numbers take your breath away.
This year, the federal government will spend $3.7 trillion, but will collect only $2.2 trillion. That gap of $1.5 trillion would be equal to more than ten percent of the national’s total economic output.
Next year, according to Obama’s fiscal plan, spending would increase to more than $3.8 trillion. Revenues would rise by two full percentage points of GDP to almost $2.6 trillion. Thus the deficit as a share of GDP would shrink to 8.3 percent. After that, matters would improve somewhat more (thanks in part to a growing economy) but the deficit would never fall below 3.6 percent of GDP. And still, the total debt held by the public would grow from an already-troubling 63 percent this year to 77 percent by 2020.
But even these deficits are based on some exceedingly wishful thinking. For instance, Obama is proposing nearly $500 billion in business tax increases over the next decade, including $122 billion from international tax hikes, $40 billion from fossil fuel producers, and $23 billion from hedge funds. Most were included in last year’s budget and went nowhere. There is no reason to believe he’ll have any better luck this year. He also once again proposed to cap the tax value of itemized deductions at 28 percent, which would raise almost $300 billion over 10 years. This idea too has gone nowhere, and if it ever gets traction, the money is likely to be used to pay for health reform.
On the other side of the income statement, Obama is proposing to extend most of the now-immortal tax extenders for only one more year (the R&D credit would be permanent). He’d also increase his signature “Making Work Pay” tax credit for just one year. He has, by the way, lost the revenue source he’d planned to use to pay for continuing that credit—his climate change bill. While it is still in his budget, the global warming effort is dying on Capitol Hill and even if a bill somehow passes, there is little chance the government will see much revenue from the proposed cap and trade system of pollution rights. Obama had proposed auctioning them and dedicating about $60 billion-a-year to the Making Work Pay Credit, but the House version gives them away.
It is possible that Obama’s proposed deficit commission will break this logjam, and make some of these tax hikes possible. But I know nobody who believes it. Democrats are already howling about Obama’s small proposed domestic spending freeze. And Republicans are not budging from their resistance to all things Obama.
Senator Judd Gregg (R-N.H.) is a good guy and, left to his own devices, is serious about deficit reduction. But even Gregg can’t pass the laugh test anymore. This morning he put out a press release entitled “We Need a Game-Changing Budget, Not More of the Same.” This from the top budget-writer of a party that passed an unfunded Medicare Part D drug benefit and massive tax cuts when it controlled Washington, and just last week voted in lockstep to oppose efforts to restore paygo rules for tax cuts and entitlement spending. Oh, and a majority of GOP senators even opposed Gregg’s own plan to create a deficit reduction commission.
It is easy to say we can’t go on like this. But, somehow, we do.
